The much-anticipated approval of spot exchange-traded funds (ETFs) for Ethereum (ETH) in the US has led to an unexpected market downturn, echoing the market behavior observed with Bitcoin’s ETF approval earlier this year. Despite predictions of a bullish surge, Ethereum’s price dropped by 4% immediately following the historic decision by the Securities and Exchange Commission (SEC).
Prior to the approval, speculation had driven Ethereum’s price up by 9%, only to see a swift 6% decline within 24 hours, settling at $3,701. This pattern of “buy the rumour, sell the news” closely mirrors Bitcoin’s experience, which saw an initial 6% drop and a 12% weekly decline after its own ETF approval in January. The reaction has left both investors and analysts puzzled.
Although long-term bullish sentiment remains for Ethereum, especially considering Bitcoin’s eventual recovery and new all-time high, the immediate market outlook is cautious. Bitcoin itself saw a 3.5% decline over the same period, reflecting broader market uncertainty and profit-taking behaviors.
Despite predictions from Standard Chartered that the approval of ETH and BTC ETFs would lead to soaring prices, the current volatility suggests a challenging path ahead, particularly for altcoins aiming for similar approval.
Is Solana the Next Candidate?
The SEC’s approval of spot Ethereum ETFs has spurred speculation about the next potential candidate, with Solana emerging as a front-runner due to its market dominance. However, regulatory challenges could significantly delay its ETF approval. The SEC has classified several major cryptocurrencies, including Solana, as “unregistered securities,” complicating the approval process.
This classification stems from lawsuits against exchanges like Coinbase and Kraken. Unlike Bitcoin and Ethereum, often seen as commodities, Solana’s categorization presents a significant hurdle. Another challenge is the absence of futures markets regulated by the Commodity Futures Trading Commission (CFTC) for Solana and other altcoins. Both Bitcoin and Ethereum ETFs were preceded by such futures products, providing a correlation analysis between futures and spot prices, a precedent necessary for SEC approval.
Legislative Hopes and Challenges
The Financial Innovation and Technology for the 21st Century Act (FIT21), recently passed by the House of Representatives, offers a glimmer of hope for the crypto community. This bill could grant the CFTC more authority over crypto spot markets, potentially easing the approval process for spot crypto ETFs. However, FIT21 faces an uncertain future in the Senate, and its potential impact on the SEC’s stance is unclear.
Polymarket, a prediction platform, currently estimates only an 11% chance of a Solana ETF being approved in 2024. Even if Solana overcomes the “unregistered security” classification, the lack of a regulated futures market and the complex legislative environment could delay its ETF approval, along with that of other altcoins.
FIT21: A Double-Edged Sword?
The passage of FIT21 has sparked debate within the crypto community. While some see it as a step towards regulatory clarity, others fear it could grant excessive power to the CFTC, potentially stifling innovation. On the positive side, FIT21 introduces a decentralization test to classify certain assets as commodities, potentially shielding them from SEC enforcement actions and promoting genuine decentralization.
Critics, however, argue that FIT21 expands the CFTC’s regulatory authority, raising concerns about potential overreach. The CFTC’s history of questionable enforcement actions in the crypto space has fueled worries about a “dual regulatory regime” where both the SEC and CFTC exert significant control over the industry.
As FIT21 awaits Senate approval, its future and potential impact on the crypto industry remain uncertain. The cryptocurrency market continues to be dynamic and fraught with risks, underscoring the need for thorough research and professional consultation before making investment decisions.
Disclaimer: The information provided in this article should not be considered financial advice. The cryptocurrency market remains dynamic and carries risks. It’s essential to conduct your own thorough research and consult with qualified professionals before making any investment decisions.
